Order (exchange)

An order in markets can be defined as a set of instructions sent to brokerages to buy or sell securities on behalf of investors. The basic unit of trade in the world of trading is order. After placing orders, they go through the execution process. While you can place an order using algorithms and automated trading systems, it is normally placed via trading platforms and mobile devices. 

Order Types

Orders are generally divided into several types, allowing traders to impose limitations on the orders’ prices and the timing of their execution. The conditions of the orders, for example, may specify a certain price limit at which orders must be filled and whether they will be filled or not.

How do Orders work?

Stocks, futures, currencies, commodities, bonds, options, and other assets can all be bought and sold using orders. Investors use many types of orders to buy and sell assets. They are initiated once the investors decide to buy or sell a specific security. And orders contain instructions for the brokerage to let it know the way to proceed with the orders.

Exchanges typically trade assets using a bid/ask system, meaning that for the asset to be sold, buyers must be willing to purchase the asset at the ask price. Sellers must also be willing to sell at the bid price of buyers for the buyers’ purchase orders to be filled. A transaction will not occur if buyers and sellers do not agree on the same prices.

When placing orders, investors must be aware of the bid/ask procedure as the order type chosen will affect the prices at which trades are filled, the time at which they’re filled, and whether they are filled. 

Different Types of Orders

Orders placed by both institutional and individual investors are often allowed on the majority of markets. The majority of investors use broker-dealers to conduct their trading, which necessitates that they place one of the other different types of orders. 

Below are some common types of orders in the market that investors should have basic knowledge of:

Order Type Definition 
Market Order With market orders, the broker is instructed to fill orders at the next price, provided that the price is available. A market order is typically executed in most cases (unless no liquidity is available) and does not have a set price. This type of orderis frequently employed by traders who don't care about pricing as long as they can get into and out of trades fast.
Stop Order With stop orders, the broker is instructed to sell provided that a certain security drops to a certain price below its existing price.
Limit Order With limit orders, the broker is instructed to purchase an asset at a given price, or even below it. This type of order makes sure that buyers only pay certain prices to purchase securities. Limit orders may continue to be in effect up to execution, expiration, or cancellation. investors use limit orders for a long position in order to profit if price increases following a purchase. A limit order may continue to be in effect up to execution, expiration, or cancellation.
Buy Stop Order With buy stop orders, the broker is instructed to purchase a security when it rises to a certain price over its existing one.
Day Order Day orders are orders that have to be executed on the trading day they are placed.
Immediate or Cancel Order Immediate or cancel (IOC) orders are the orders to purchase or sell securities that seek to execute a portion of all of them instantly and cancel all unfilled portions. In IOC orders, partial fulfillments are possible if the complete orders aren’t immediately accessible for buying.
Good 'Til Canceled (GTC) Order With CTC orders, an order continues to be in effect until it is canceled or filled.Investors normally set an expiry date for orders if they are not good-'til-canceled order or day orders.
Fill-or-Kill (FOK) Order FOK orders are either carried out quickly and entirely, or not carried out altogether.
All-or-None (AON) order With all-or-none orders, the broker is instructed to fill the whole order. Thus, this type of order does not allow a partial fill.

It is worth mentioning that there is no superior or inferior order type. Based on every given circumstance, each type of order has a unique function that makes it the right choice for the investor.

About the author

Ziga Breznik is the owner and head of research at PublicFinanceInternational.org – he is an active investor in the forex, crypto and stock markets – he has seen trading platforms disappear along with his investments – especially during the “crypto boom”. Ziga learned the hard way that finding a reputable and trustworthy online brokerage is key to long-term success in the financial markets. He founded PublicFinanceInternational.org as a platform where he shares his research with one goal in mind: to provide unbiased and trustworthy online brokers reviews.